Group Project

Carbon Impact of sending electronic annual report for Indian companies from Apr-11
Faculty Guide Prof. Amit Garg In partial fulfillment of the course Carbon Finance

Submitted by Section A, Group 2 Group members:

Anandh Sundar Tripuri Abou Nader Antony Anish Joy Rajesh Pentakota Parveen Kumar Nitesh Kumar

Introduction In Apr-11, the Ministry of Corporate Affairs permitted1 companies to electronically dispatch their annual reports, AGM notices and other statutory shareholder communication, to shareholders who had registered email addresses linked in their demat accounts. This initiative was aptly titled Green initiative. At first glance, this appears to save lots of paper and printing cost for the companies concerned. However, there is potential for leakage IF the screen based emissions exceed the paper emissions savings OR If this adoption is not universalized. This project aims to calculate the carbon impact (GHG savings, trees saved, transport saving) of this initiative, taking large (>50,000 individual shareholder) companies as the basis. As per CMIE Prowess, as on June-11, there were 2825 companies with 100 million individual shareholders. Of these, just 410 companies (with 50,000+ shareholders) accounted for 75 million shareholders. We intended to analyze the carbon savings of these 410 companies, which can now send electronic communication to a large majority of their shareholders. Methodology While companies can send AGM notices, EGM notices, postal ballots etc through email, we have just considered the statutory annual financial report for the purpose of this project. This is because the other documents are event driven, and may not happen. Therefore, we just considered the impact of emailing the annual report instead of printing and mailing it. The steps followed were 1. Use CMIE Prowess 4.0 to extract a list of companies traded on BSE/NSE 2. Filter for companies regular in filings who will presumably send annual reports to their investors(other companies delisted/in Z group may not do so). 3. Since we are checking the annual report of each company to determine number of pages and type(B/W or colour), we decided to follow the 80:20 rule during this manual process. So we decided to select only those companies with 50,000 or more non promoter shareholders. True to the 80:20 rule, this process revealed that those 410 companies accounted for 75 million shareholders 4. After filtering out companies with defunct filings(yes there were some of them), we arrived at 393 companies. After multiplying the annual report pages by the number of
1

http://www.mca.gov.in/Ministry/pdf/Circular_18-2011_29apr2011.pdf

shareholders, we arrived at the total number of annual report pages. Shockingly, just 31 companies accounted for 50% of total annual report pages. These companies are listed below in descending order of total page count. Ironically, most are energy/infrastructure companies which themselves use up high resources in this! Reliance Industries Ltd. Reliance Power Ltd. Satyam Computer Services Ltd. Tata Steel Ltd. State Bank Of India Larsen & Toubro Ltd. Reliance Communications Ltd. N T P C Ltd. Power Grid Corpn. Of India Ltd. N H P C Ltd. Reliance Infrastructure Ltd. Suzlon Energy Ltd. Coal India Ltd. I C I C I Bank Ltd. Oil & Natural Gas Corpn. Ltd. Reliance Capital Ltd. D L F Ltd. Tata Consultancy Services Ltd. J S W Ispat Steel Ltd. I D B I Bank Ltd. Unitech Ltd. G M R Infrastructure Ltd. L & T Finance Holdings Ltd. I T C Ltd. Steel Authority Of India Ltd. Jaiprakash Associates Ltd. J S W Steel Ltd. H D F C Bank Ltd. Bharat Heavy Electricals Ltd. I F C I Ltd. Central Bank Of India 5. We divided the page count by 2 to find total A4 sheets used during the process. 6. Savings/company=Pages in Annual Report * (GHG/page+GHG in postage/page)*(%electronic copies)

Primary Research to estimate leakage We surveyed 17 investors. The average investor surveyed by us had Rs 70,000 in equity; Rs 34000 in mutual funds and Rs 13,000 in ULIPs. We asked them questions on their preferred version (print/PDF), delivery method(download/email/home) and change if offered an incentive. We also asked them whether they had registered their own email Ids with the depository and if so why not. We sought qualitative comments on why they would/would not read electronic documents relating to financial statements. The comments we received were mostly on the lines that physical copy is easier to read, and is needed for more serious reading. One person even mentioned that physical copy could be read during daily commute unlike e-copy! From the responses, we think that around 20% shareholders would request physical report. This corresponds roughly with the number of those who have not registered their email IDs with depository. Leakage would therefore be estimated at 20%. Estimating printing emission savings Total CO2 per page estimated as 0.012519 Kg/page. Total 4869 million sheets(2x of that are pages!) Hence, 61MM Kg Co2 is saved, or around 49MM Kg Co2 at 20% leakage.

Analysis Particulars B/W Colour Total(Average)

Companies Average number of shareholders Average number of pages Number of companies with abridged version

195 196144

198 181920

391

99

120

12

17

The companies with coloured annual reports not only use more pages, but also have fewer abridged versions. This is not eco friendly.

Limitations We sought data from NSDL/CDSL about the percentage of investors who have not registered their email IDs, but the organizations did not reply on grounds of confidentiality of data. That would have allowed us to check out 20% estimate. We could have discriminated better for coloured pages extra emissions. That was not done due to data constraints.

Estimating Transport Emissions The annual reports are sent by book post, which is mostly despatched by train Indian Railways allocates a fixed space for postal cargo. Hence, incremental tonne kms are hard to establish However, Prof Amit Garg suggested that we find out the Co2 emission per tonne km, and then apply it to the final weight. From our calculations using data from Railway Statistics Handbook till 2009-10, we note that the net Co2(in gms/ton km) had been steadily declining from 14 in FY2005-06 to 10 in FY2009-10. We have adopted the latest figure(10gms/tonne km) for our estimate. This assumes that average passenger weight is 65kg(since adds to tonne kms!) A typical A4 sheet weighs 5 grams. Over 4869 sheets, that is 24,345 tons. Even taking a conservative 400km distance travelled by rail per annual report, that leads to 10 million tonne km of annual reports per year At 10gm/tonne km, we note that 0.1 million Kg Co2 can be attributed to the transport of annual reports, or 8,00,00kg Co2 after leakage. In relation to the printing emissions, this is a rounding error.

Learnings/Take Home Despite the relatively small amount involved, this could have been carried out as a program of activities for which carbon credits could have been obtained. Since this was done under a law, carbon credits would not be available To incentivize shareholders to send email IDs, a special dividend could be declared of Rs 35(or cost to print annual report) if 100% compliance is reached. This collective reward pattern would be fair and would induce social pressure on the holdouts to comply. Vast scope for extending this to mutual funds and collective investment schemes. In fact, SEBI already passed a circular in Sep-11 permitting mutual funds to email their annual reports to unit holders instead of mail. On similar lines to the MCA bill, those requesting physical copies will be supplied it free of cost. Scope for further study Leakage due to ebook readers. In India, not many ebook readers are there at present. Hence, the negative externality of cadmium/plastics/precious metal mining for ebook readers etc is not factored in. But given that Infibeam has launched an ebook reader for Rs 9999(with Rs 10,000 gift vouchers in return), also that Kindle prices have sharply come down, we expect that the use of ebook readers will increase. And then this issue may become significant. Screen emissions:- Reading the electronic annual report on the screen will take time, and possible increase the total hours of computer usage. However, especially for offices and academic institutions(where most investors would presumably read their annual reports), establishing the incremental effect would be difficult Who shares the benefits? Presently, all cost savings accrue to the company, which has no obligation to reward shareholders, use the money for green activities etc. This aspect needs more consideration to decide who should share in the proceeds.

Data sources/References Online Survey conducted for assessing investor preferences Below graphic summarizes how Co2 per page was calculated.

E MISSION
Paper Production

SAVINGS

Logging: 0.024 pounds of Carbon absorbed from the atmosphere for each sheet of paper saved Paper Production: 0.0022 pounds of Carbon per sheet prevented from entering the atmosphere due to savings in electricity consumption and usage of chemicals

Transportation and Mailing

Reduction in emissions associated with transport Emissions = Tonnage of paper* Distance travelled* Fuel Emissions Factor

Printing

Reduction in emissions associated with electricity consumption Medium sized printer will cause the emissions of 0.0007 pounds per sheet

Source: John Heinz III Center for Science, Economics and Environment (W ashington D.C.): 0.0275 Pounds per Sheet from logging to Distributi on

Below table explains how the railway transport figure was calculated. Main sources werehttp://www.epa.gov/greenpower/pubs/calcmeth.htm And (http://greencleanguide.com/2011/09/14/calculate-your-carbon-footprint/
Fuel

Coal Diesel Electricity Co2 emitted Passenger km Passenger tonkm Freight ton km TOTAL TKM gms Co2/ton-km
Typical A4sheet Million Sheets Weight in tons Avg kms travelled Million TonKm Million Kg Co2

Unit/Conversion 000 tonnes KL MM kwh In Tons MM *65kg/passenger/1000 Tonkm given

2009-10

2008-09 2007-08 2006-07 2005-06 Emission factor(kg CO2/unit) 2 2 3 3 3 2020574.321 2,400,260 2,260,754 2,284,061 2,211,531 2,111,190 2690 13,003 12,242 11,685 11,061 10,425 890 6,472,313 6,096,365 6,160,585 5,964,924 5,694,441 903,465 836,032 769,956 694,764 615,614 58,725 54,342 50,047 45,160 40,015 601,290 552,002 523,196 483,422 441,762 660,015 606,344 573,243 528,582 481,777 10 10 11 11 12

5 grams 4,869 MM sheets 24,345 400 10 0